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ENJOY THE LIBERTY
OF TAX-FREE INVESTING...
FORTIS
TAX-FREE PORTFOLIOS
ANNUAL REPORT
SEPTEMBER 30, 1997
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC. ANNUAL REPORT
CONTENTS
LETTER TO SHAREHOLDERS 1
SCHEDULES OF INVESTMENTS
NATIONAL PORTFOLIO 4
MINNESOTA PORTFOLIO 7
STATEMENTS OF ASSETS AND LIABILITIES 10
STATEMENTS OF OPERATIONS 11
STATEMENTS OF CHANGES IN NET ASSETS
NATIONAL PORTFOLIO 12
MINNESOTA PORTFOLIO 13
NOTES TO FINANCIAL STATEMENTS 14
INDEPENDENT AUDITORS' REPORT 17
FEDERAL INCOME TAX INFORMATION 18
BOARD OF DIRECTORS AND OFFICERS 19
OTHER PRODUCTS & SERVICES 20
- - TOLL-FREE PERSONAL ASSISTANCE
- Shareholder Services
- (800) 800-2638, Ext. 3012
- 7:30 a.m. to 5:30 p.m. CST, M-Th
- 7:30 a.m. to 5:00 p.m. CST, F
- - TOLL-FREE INFORMATION LINE
- For daily account balances,
transaction activity or net asset
value information
- (800) 800-2638, Ext. 4344
- 24 hours a day
FOR MORE INFORMATION ABOUT FORTIS FINANCIAL GROUP'S FAMILY OF PRODUCTS, CALL
YOUR INVESTMENT REPRESENTATIVE OR THE HOME OFFICE AT (800) 800-2638.
TO ORDER PROSPECTUSES OR SALES LITERATURE FOR ANY FORTIS PRODUCT, CALL (800)
800-2638, EXT. 4579.
HOW TO USE THIS REPORT
For a quick overview of the Fund's performance during the past twelve months,
refer to the Highlights box below. The letter from the portfolio manager and
president provides a more detailed analysis of the Fund and financial markets.
The charts following the letter are useful because they provide more information
about your investments. The top holding chart shows the types of securities in
which the Fund invests, and the pie chart shows a breakdown of the Fund's assets
by industry.
The performance chart graphically compares the Fund's total return performance
with a selected investment index. Remember, however, that an index may reflect
the performance of securities the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Individuals cannot buy an unmanaged index fund without incurring
some charges and expenses.
This report is just one of several tools you can use to learn more about your
investment in the Fortis Family of Mutual Funds. Your investment representative,
who understands your personal financial situation, can best explain the features
of your investment and how it's designed to help you meet your financial goals.
HIGHLIGHTS
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS E CLASS H
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FORTIS TAX-FREE NATIONAL
NET ASSET VALUE PER SHARE:
Beginning of year.......................... $ 10.75 $ 10.74 $ 10.74 $ 10.76 $ 10.75
End of year................................ $ 11.06 $ 11.05 $ 11.04 $ 11.07 $ 11.06
DISTRIBUTIONS PER SHARE
From net investment income................. $ 0.525 $ 0.441 $ 0.441 $ 0.549 $ 0.441
FORTIS TAX-FREE MINNESOTA
NET ASSET VALUE PER SHARE:
Beginning of year.......................... $ 10.26 $ 10.24 $ 10.26 $ 10.28 $ 10.26
End of year................................ $ 10.43 $ 10.42 $ 10.44 $ 10.46 $ 10.44
DISTRIBUTIONS PER SHARE
From net investment income................. $ 0.507 $ 0.423 $ 0.423 $ 0.531 $ 0.423
</TABLE>
<PAGE>
Photo
Investing in municipal bonds for
tax-free income.
GLOSSARY OF TERMS*
AVERAGE QUALITY is the credit rating of the average security in a portfolio.
Average quality is calculated using the ratings of each security in the
portfolio, weighted by its market value.
BENCHMARK is an index which is a synthetic portfolio of similar securities
against which a fund is measured.
BOND BUYER REVENUE BOND INDEX is the average yield on a group of 25 municipal
revenue bonds with final maturities of 30 years.
CALL PROTECTION is the extent to which bondholders are protected from
redemption of bonds by issuers prior to their stated maturity dates.
CONSUMER PRICE INDEX (CPI) is a monthly index, compiled by the Bureau of Labor
Statistics, which represents changes in prices of all goods and services
purchased for consumption by urban households. This index is a widely watched
measure of consumer inflation.
COUPON is the specified contracted annual interest rate payable to a
bondholder.
DURATION is the measure of a bond fund's sensitivity to interest rate changes.
Traditionally measured in years, higher durations mean potentially greater
fluctuations in bond values, just as lower durations typically mean less
volatility.
FEDERAL FUNDS RATE is the interest rate charged by banks with excess reserves
to banks that need the money to meet reserve requirements.
FEDERAL RESERVE BANK ("THE FED") is led by its chairman, Alan Greenspan, the
Federal Reserve Bank is the central bank of the United States. The Federal
Reserve Bank is charged with responsibility for implementing policies which
preserve the purchasing power of the U.S. dollar, and encouraging economic
growth. One of the more widely known tools used by the Fed in pursuing its
goals is the Federal Funds ("Fed Funds") rate.
NEUTRAL DURATION is the portfolio duration that equals the benchmark for each
portfolio.
PRODUCER PRICE INDEX (PPI) is a monthly index, compiled by the Bureau of Labor
Statistics, which measures the average change in prices received by domestic
producers of commodities in all stages of processing.
OID is a term applied to a bond which was originally issued at a price below
face value. For tax-exempt securities, the appreciation of a bond from its
original issue discount to face value over its life is treated as tax-exempt
income.
DEAR SHAREHOLDER,
We are pleased to present the Fortis Tax-Free Portfolios, Inc. annual report for
the year ending September 30, 1997.
ECONOMIC REVIEW
The bond market digested a wide variety of economic information during the past
year. Real Gross Domestic Product rose at an average annualized rate of 4.1
percent during the nine months ending June 30, 1997. Economic growth was
supported with strong non-farm payroll growth, as the unemployment rate fell to
4.9 percent in September 1997 from 5.2 percent in October 1996. The CONSUMER
PRICE INDEX* continued to behave well, showing year-over-year core inflation of
2.3 percent for the 12 months ending in August. In addition, a string of seven
consecutive months of declining PRODUCER PRICE INDEX* releases was broken in
August.
Within this framework, municipal bond yields, as reflected by the BOND BUYER
REVENUE BOND INDEX*, traded within a range of less than two-thirds of 1 percent
over the 12-month period. After beginning the period at 6.01 percent, yields
dropped to 5.80 percent before year-end technical pressures drove the index to
6.02 percent in late January 1997. During the fourth quarter of 1996, in order
to benefit from expected price appreciation, we lengthened the DURATION* of the
funds to levels slightly longer than their respective BENCHMARKS*.
We accomplished this in the National Portfolio by purchasing premium noncallable
bonds. The market reversed most of its December and January decline during
February. It began to fall again during March as Federal Reserve Chairman Alan
Greenspan's comments led the market to expect higher interest rates. On March
25, the FEDERAL RESERVE* raised its FED FUNDS RATE* to a target 5.50 percent
from 5.25 percent. The Index rose to 6.14 percent in mid-April, its highest
yield level for 1997 to date. As the first quarter of 1997 was ending and the
second quarter beginning, we reduced holdings of premium noncallable bonds in
the National Portfolio, and we increased holdings of discount callable bonds.
These discounts contributed to the National Portfolio's outperformance of the
Index which slowly declined until it reached 5.49 percent in late July.
Beginning in August, increased concern about the strong economy caused the
market to back up slightly. During August and September, the Index fluctuated
between 5.50 percent and 5.75 percent. The National Portfolio underperformed its
competitors in August, but kept pace in September. The 12-month total return for
the Tax-Free National Portfolio was 8.19 percent (Class E before sales charge).
While we increased discounted holdings in the Minnesota Portfolio, these
holdings could not be added quickly enough to improve relative performance. The
12-month total return for the Tax-free Minnesota Portfolio was 7.10 percent
(Class E before sales charge). The duration of the funds at the end of the
reporting period were 8.2 years for the National Portfolio (103 percent of its
benchmark) and 7.6 years for the Minnesota Portfolio (105 percent of its
benchmark).
OUTLOOK
If bond market rates remain near the lower end of their current range, our
strategy is to move the duration of the portfolios closer to their NEUTRAL
DURATIONS*. We expect the economy to continue to grow, though at a rate slower
than earlier this year. Inflation should be restrained, but we do not believe
that inflation will be as well behaved as it was earlier this year. Narrow
quality spreads do not justify any adjustment in the Funds' current AA AVERAGE
QUALITY*. COUPON*, CALL PROTECTION*, and ORIGINAL ISSUE DISCOUNT (OID)* will
continue to be important elements of bond structure as we look to enhance future
portfolio performance.
IN CLOSING
Today's economic and investment climate is ever changing. We appreciate your
trust in us as we manage these portfolios for you. If you have any questions,
please call us or your investment advisor.
Sincerely,
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
Dean C. Kopperud Howard G. Hudson
President Vice President
</TABLE>
October 17, 1997
* terms defined in GLOSSARY OF TERMS
1
<PAGE>
COMPOSITION BY INDUSTRY
AS OF 09/30/97
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Utilities-Water and Sewer 19.00%
Health Care/Services 17.80%
General Obligation 16.90%
Transportation 13.60%
Utilities-Electric 8.40%
Higher Education 6.60%
Refunded with U.S. Gov't 6.00%
Housing 3.90%
Cash Equivalents/Receivables 3.00%
Miscellaneous 1.70%
Public Facilities 1.20%
Utilities-Gas 1.10%
Industrial 0.80%
</TABLE>
NATIONAL PORTFOLIO
VALUE OF $10,000 INVESTED OCTOBER 1, 1987
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROS. MUNICIPAL BOND INDEX*** NATIONAL PORTFOLIO CLASS E
<S> <C> <C> <C>
87 10,694 10,254
88 12,082 10,845
89 13,131 11,941
90 14,023 12,493
91 15,872 14,018
92 17,531 15,611
93 19,765 17,562
94 19,290 17,542
95 21,448 18,708
96 22,660 19,573
97 24,696 21,206
National Portfolio Class E
Average Annual Total Return
1 Year 5 Year 10 Year
Class E* +3.32% +5.61% +7.66%
Class E** +8.19% +6.59% +8.16%
</TABLE>
Annual Period ended September 30
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the portfolios total returns during the period, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
*** An unmanaged index of municipal bonds with maturities greater than two
years.
TOP 10 HOLDINGS AS OF 09/30/97
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. Minnesota Agriculture & Economic Development
(5.50%) 2017 4.1%
2. University of New Mexico (6.00%) 2021 3.7%
3. New York Triborough Bridge & Tunnel Auth (5.50%)
2017 3.6%
4. Metropolitan Transportation Auth, NY (5.75%) 2013 3.5%
5. Grapevine-Colleyville, TX Independent School
District (5.75%) 2012 3.3%
6. Tucson, AZ Water (5.50%) 2014 3.1%
7. Fulton County Georgia Water & Sewer (6.375%) 2014 2.8%
8. Detroit, MI Water System (6.50%) 2015 2.7%
9. Southern California Public Power (6.36%) 2013 2.4%
10. Madison, TN Suburban Utility District (5.00%) 2019 2.3%
</TABLE>
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- ------------------------------------------------------------------
<S> <C> <C>
Class A shares# +7.96% +9.75%
Class A shares## +3.10% +8.00%
Class B shares# +7.14% +8.88%
Class B shares## +3.54% +8.08%
Class C shares# +7.04% +8.85%
Class C shares## +6.04% +8.85%
Class H shares# +7.13% +8.91%
Class H shares## +3.53% +8.11%
</TABLE>
Past performance is not indicative of future performance. Total returns include
reinvestment of all dividend and capital gains distributions. The performance of
the separate classes (E, A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class E and A have a maximum sales charge of 4.50%, Class B
and H have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if
redeemed in year three or four (with a waiver of 10% of the amount purchased)
and Class C has a CDSC of 1.00% if redeemed within one year of purchase.
# Without sales charge.
## With sales charge. Assumes redemption on September 30, 1997.
+ Since November 14, 1994 -- Date shares were first offered to the public.
2
<PAGE>
COMPOSITION BY INDUSTRY
AS OF 09/30/97
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
General Obligations 27.5%
Housing 18.1%
Health Care/Services 17.3%
Higher Education 8.3%
Utilities-Electric 8.1%
Refunded with U.S. Gov't 5.4%
Miscellaneous 5.0%
Pollution Control 4.8%
Public Facilities 2.6%
Cash Equivalents/Receivables 1.8%
Utilities-Water and Sewer 1.1%
</TABLE>
MINNESOTA PORTFOLIO
VALUE OF $10,000 INVESTED OCTOBER 1, 1987
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROS. MUNICIPAL BOND INDEX*** MINNESOTA PORTFOLIO CLASS E
<S> <C> <C> <C>
87 10,694 10,164
88 12,082 10,663
89 13,131 11,608
90 14,023 12,200
91 15,872 13,539
92 18,531 14,889
93 19,765 16,651
94 19,290 16,741
95 21,448 17,840
96 22,660 18,591
97 24,696 19,936
Minnesota Portfolio Class E
Average Annual Total Return
1 Year 5 Year 10 Year
Class E* +2.28% +5.18% +7.10%
Class E** +7.10% +6.15% +7.60%
::
</TABLE>
Annual Period ended September 30
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the portfolios total returns during the period, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
*** An unmanaged index of municipal bonds with maturities greater than two
years.
TOP 10 HOLDINGS AS OF 09/30/97
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. Minnesota Agriculture & Economic Development
(5.50%) 2017 6.0%
2. Centennial, MN Independent School District #12
(5.625%) 2016 5.0%
3. St. Cloud (City of), MN (5.25%) 2018 4.7%
4. Minneapolis (City of), MN Special School District
#001 (5.00%) 2014 4.6%
5. University of MN (Regents of) (5.50%) 2021 4.1%
6. Minneapolis & St. Paul (Cities of), MN (5.70%)
2016 4.1%
7. Rochester (City of), MN Health Care Facility
(5.90%) 2010 3.3%
8. Brainerd (City of), MN (6.65%) 2017 3.3%
9. Minnesota (State of) Enhancement Program (5.25%)
2015 3.0%
10. St. Louis Park (City of), MN Hospital Facility
(7.25%) 2015 2.8%
</TABLE>
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- ------------------------------------------------------------------
<S> <C> <C>
Class A shares# +6.66% +8.49%
Class A shares## +1.86% +6.77%
Class B shares# +6.01% +7.65%
Class B shares## +2.41% +6.83%
Class C shares# +6.00% +7.70%
Class C shares## +5.00% +7.70%
Class H shares# +6.00% +7.71%
Class H shares## +2.40% +6.89%
</TABLE>
Past performance is not indicative of future performance. Total returns include
reinvestment of all dividend and capital gains distributions. The performance of
the separate classes (E, A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class E and A have a maximum sales charge of 4.50%, Class B
and H have a CDSC of 4.00% if redeemed within two years of purchase or 3.00% if
redeemed in year three or four (with a waiver of 10% of the amount purchased)
and Class C has a CDSC of 1.00% if redeemed within one year of purchase.
# Without sales charge.
## With sales charge. Assumes redemption on September 30, 1997
+ Since November 14, 1994 -- Date shares were first offered to the public.
3
<PAGE>
FORTIS TAX-FREE PORTFOLIOS
NATIONAL PORTFOLIO
Schedule of Investments
September 30, 1997
MUNICIPAL BONDS-96.97%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
ARIZONA-3.12%
$2,225,000 Tucson, AZ, 5.50% Water Rev Refunding Bond
7-1-2014................................... A+ $ 2,186,595 $ 2,308,971
------------ ------------
CALIFORNIA-5.15%
2,385,000 Redwood City California Elem School Dist,
5.50% Zero Coupon General Obligation FGIC
Insured 8-1-2018 (d)....................... AAA 770,095 781,040
4,000,000 Southern California Public Power, 6.36% Zero
Coupon Bond 7-1-2013 (d)................... A 1,492,098 1,757,360
2,750,000 Sulphur Springs (City of), CA, 7.00% Zero
Coupon General Obligation Ser A MBIA
Insured 9-1-2012 (d)....................... AAA 985,380 1,272,947
------------ ------------
3,247,573 3,811,347
------------ ------------
CONNECTICUT-2.25%
1,500,000 Connecticut State, 6.125% Special Tax
Obligation Rev Transportation
Infrastructure Ser B 9-1-2012.............. AA- 1,577,284 1,664,175
------------ ------------
DISTRICT OF COLUMBIA-3.27%
1,250,000 District of Columbia, 7.50% General
Obligation Ser 1990B FSA Insured 6-1-2010
(Refunded 6-1-2000 @102)................... AAA 1,235,938 1,376,075
1,000,000 Georgetown University, 8.25% District of
Columbia Rev Bond 4-1-2018 (Refunded
4-1-1998 @102)............................. A+ 1,035,325 1,040,450
------------ ------------
2,271,263 2,416,525
------------ ------------
FLORIDA-1.58%
500,000 Florida (State of), 7.50% Mid-Bay Bridge Auth
Ser 1991A 10-1-2017 (Crossover Refunded
10-1-2001 @ 103)........................... NR 475,416 544,500
600,000 Tampa (City of), FL, 8.25% Cap Improvement
Program Rev Bond Ser A 10-1-2018........... AA 598,958 621,822
------------ ------------
1,074,374 1,166,322
------------ ------------
GEORGIA-6.39%
1,375,000 Brunswick, GA, Water & Sewer, 6.10% Rev Ref &
Improvement Bond MBIA Insured 10-1-2019.... AAA 1,466,874 1,536,067
1,800,000 Fulton County, GA, Water & Sewer, 6.375% Ref
Bond FGIC Insured 1-1-2014................. AAA 1,785,726 2,062,116
1,000,000 Municipal Electric Auth of Georgia, 6.50% 5th
Crossover Ser Proj 1 1-1-2017.............. A 993,140 1,126,700
------------ ------------
4,245,740 4,724,883
------------ ------------
ILLINOIS-4.83%
500,000 Channahon Park, IL District, 7.50% General
Obligation 1-1-2011 (Prerefunded 7-1-2001
@100)...................................... NR 499,375 557,060
750,000 Chicago Gas Supply, 7.50% Rev for Peoples Gas
Ser B 3-1-2015............................. AA- 758,947 811,852
1,000,000 Illinois Dev Fin Auth, 7.375% Power Co Proj
Ser 1991A 7-1-2021......................... BBB 992,890 1,146,320
1,000,000 Illinois Housing Dev Auth, 7.55% Multi-family
Housing Ser 1990A 7-1-2014................. A+ 987,575 1,054,870
------------ ------------
3,238,787 3,570,102
------------ ------------
INDIANA-3.54%
1,200,000 Indiana Bond Bank, 8.50% Special Loan Program
Ser B 2-1-2018............................. A 1,212,064 1,241,448
1,250,000 Indianapolis (City of), IN, Local Public
Improvement Bond Bank, 7.40% Ser 1990A
1-1-2020 (Refunded 7-1-2000 @102).......... Aaa* 1,247,386 1,378,250
------------ ------------
2,459,450 2,619,698
------------ ------------
KENTUCKY-2.99%
1,000,000 Christian County, KY, Hospital, 6.00% Rev Ref
Bond Jennie Stuart Medical Center
7-1-2013................................... A- 994,961 1,055,040
1,000,000 Louisville & Jefferson County, KY, 6.75%
Metro Sewer Dist Rev Bond Ser A AMBAC
Insured 5-15-2019 (Prerefunded 11-15-2004
@102)...................................... AAA 996,380 1,156,470
------------ ------------
1,991,341 2,211,510
------------ ------------
MARYLAND-1.39%
1,000,000 Maryland State, 5.00% General Obligation
3-1-2001................................... AAA 1,011,321 1,027,450
------------ ------------
MASSACHUSETTS-0.75%
500,000 Boston, MA, City Hospital, 7.625% Rev Bond
Ser A 2-1-2021 (Refunded 8-15-2000 @
102)....................................... Aaa* 496,557 555,775
------------ ------------
MICHIGAN-6.48%
1,750,000 Detroit, MI, Water System, 6.50% Rev Bond
FGIC Insured 7-1-2015...................... AAA 1,870,225 2,018,100
1,350,000 Lincoln Park, MI, 5.85% School District Rev
Bond FGIC Insured 5-1-2015................. AAA 1,346,943 1,423,764
</TABLE>
4
<PAGE>
MUNICIPAL BONDS-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
$1,360,000 Michigan State Hospital, 5.50% Fin Auth Mercy
Health System Ser S 8-15-2020.............. AA- $ 1,279,068 $ 1,352,901
------------ ------------
4,496,236 4,794,765
------------ ------------
MINNESOTA-9.11%
1,140,000 Fergus Falls (City of), MN, 6.50% Health Care
Facility (Lake Regional Hospital) Ser A
9-1-2018................................... BBB+ 1,133,596 1,197,410
670,000 Minneapolis (City of), MN, 7.00% Health Care
Fac Rev (St. Olaf Residence) Ser 1993
10-1-2012.................................. NR 670,000 716,572
3,000,000 Minnesota Agriculture and Economic
Development, 5.50% Healthcare System Rev
Ser 1997A Fairview Hospital and Healthcare
Services MBIA Insured 11-15-2017........... AAA 2,907,070 3,012,960
690,000 St. Anthony (City of), MN, 6.75% Housing Dev
Rev Ref Bond 7-1-2007...................... AA 690,000 749,223
1,000,000 University of MN (Regents of), 5.75% General
Obligation Ser 1996A 7-1-2018.............. AA 1,012,082 1,063,970
------------ ------------
6,412,748 6,740,135
------------ ------------
MISSOURI-1.84%
1,250,000 Missouri State Health & Educ, 7.70% Still
Regional Med Ctr 2-1-2013.................. BBB 1,290,171 1,364,300
------------ ------------
NEVADA-1.45%
1,000,000 Washoe County, NV, Hosp, 7.60% Washoe Med Ctr
Rev Bond Ser 1989A 6-1-2019 (Prerefunded
6-1-1999 @102)............................. NR 971,310 1,074,870
------------ ------------
NEW JERSEY-3.51%
1,000,000 New Jersey State Highway Auth, 6.20% Garden
State Pkwy Gen Rev Bond Sr Parking Bond
1-1-2010................................... AA- 1,075,580 1,125,500
1,500,000 New Jersey State Transportation Fund, 5.00%
Ser A MBIA Insured 6-15-2015............... AAA 1,436,958 1,470,540
------------ ------------
2,512,538 2,596,040
------------ ------------
NEW MEXICO-3.71%
2,500,000 University of New Mexico, 6.00% Rev Ref Ser A
6-1-2021................................... AA 2,577,143 2,741,400
------------ ------------
NEW YORK-12.47%
2,465,000 Metropolitan Transportation Authority, NY,
Commuter Facilities, 5.75% Ser O
7-1-2013................................... BBB 2,391,937 2,582,260
1,000,000 New York City, NY, 8.25% General Obligation
Ser B 6-1-2005............................. BBB+ 990,719 1,212,070
1,000,000 New York State Dorm Auth, 6.00% Rev Cons City
Univ System 2nd Gen 7-1-2020............... BBB+ 1,018,663 1,075,220
500,000 New York State Med Care, 7.50% Mental Health
Ser A 2-15-2021 (Refunded 2-15-2001 @
102)....................................... AAA 482,114 560,865
1,000,000 New York State, 7.75% UDC Correctional Fac
Ser 1 1-1-2014 (Refunded 1-1-2000 @ 102)... Aaa* 962,909 1,097,760
2,600,000 New York Triborough Bridge and Tunnel Auth,
5.50% General Purpose Ser Y 1-1-2017....... A+ 2,495,999 2,693,938
------------ ------------
8,342,341 9,222,113
------------ ------------
NORTH DAKOTA-1.61%
1,100,000 Ward County, ND, 7.50% Health Care Fac Ser
1991B 7-1-2011............................. BBB+ 1,123,948 1,187,065
------------ ------------
OHIO-2.74%
750,000 Cleveland (City of), OH, Parking Facility,
8.10% Improvement Proj Rev Bond 9-15-2022
(Prerefunded 9-15-2002 @102)............... NR 758,796 885,105
1,100,000 Cleveland, OH, 5.50% Water Works Rev Ref Bond
Ser G First Mtg MBIA Insured 1-1-2021...... AAA 1,091,344 1,138,093
------------ ------------
1,850,140 2,023,198
------------ ------------
PENNSYLVANIA-1.14%
750,000 Clarion County, PA, Hospital Auth, 8.50%
Clarion Hospital Proj Rev Bond 7-1-2021.... NR 734,329 845,670
------------ ------------
PUERTO RICO-1.89%
1,250,000 Puerto Rico, 6.25% Commonwealth Aqueduct &
Sewer Auth Rev Ref Bond Commonwealth Gtd.
7-1-2013................................... A 1,339,609 1,399,900
------------ ------------
SOUTH CAROLINA-1.88%
1,450,000 Spartanburg County, 5.125% Health Svcs Dist.
Inc., Hosp Rev Ref Bond Ser B MBIA Insured
4-15-2022.................................. AAA 1,353,046 1,390,391
------------ ------------
TENNESSEE-3.82%
1,750,000 Madison, TN, Suburban Util Dist, 5.00% Rev
Bond MBIA Insured 2-1-2019................. AAA 1,628,416 1,672,493
1,000,000 Metro Gov't of Nashville & Davidson County,
TN, 6.50% Water & Sewer Ref Bond FGIC
Insured 1-1-2010........................... AAA 1,088,236 1,152,990
------------ ------------
2,716,652 2,825,483
------------ ------------
TEXAS-5.96%
2,250,000 Grapevine-Colleyville, TX, 5.75% Independent
School District PSF Rev Ref Bond
8-15-2012.................................. AAA 2,283,629 2,435,310
1,000,000 Texas Water Development Board, 5.25% Sr Lien
Ser A 7-15-2017............................ AAA 935,671 992,620
</TABLE>
5
<PAGE>
FORTIS TAX-FREE PORTFOLIOS
NATIONAL PORTFOLIO (CONTINUED)
Schedule of Investments
September 30, 1997
MUNICIPAL BONDS-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
$1,000,000 Waller, TX, 5.25% Cons Independent School
District 2-15-2021......................... Aaa* $ 941,011 $ 982,760
------------ ------------
4,160,311 4,410,690
------------ ------------
WASHINGTON-2.97%
1,000,000 Washington Public Power Supply Sys, 7.00%
Nuclear Proj 2 Ref Rev Bond Ser B 7-1-2012
(Prerefunded 7-1-2000 @102)................ AA- 959,114 1,090,920
1,000,000 Washington Public Power Supply Sys, 7.625%
Proj 2 Rec Bond Ser 1990A 7-1-2008
(Refunded 7-1-2000 @ 102).................. AAA 986,875 1,107,010
------------ ------------
1,945,989 2,197,930
------------ ------------
WISCONSIN-1.13%
750,000 Wisconsin Health & Educ Fac Auth, 8.50% Rev
Bond Ser 1990 (Franciscan Health Sys)
3-1-2020 (Refunded 3-1-2000 @ 102)......... Aaa* 750,000 838,740
------------ ------------
TOTAL MUNICIPAL BONDS........................ $66,376,796 $71,729,448
------------ ------------
------------ ------------
</TABLE>
SHORT-TERM INVESTMENTS-1.82%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
----------- ------------
<C> <S> <C>
INVESTMENT COMPANY-1.82%
$1,346,436 Federated Tax-Free Obligation Fund, Current rate -- 3.81%................. $ 1,346,436
------------
TOTAL INVESTMENTS IN SECURITIES (COST: $67,723,232) (a)................... $73,075,884
------------
------------
</TABLE>
(a) At September 30, 1997, the cost of securities for federal income tax
purposes was $67,723,232, and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $ 5,353,533
Unrealized depreciation........................... (881)
---------------------------------------------------------------
Net unrealized appreciation....................... $ 5,352,652
---------------------------------------------------------------
</TABLE>
(b) See Note 1 of accompanying Notes to Financial Statements regarding
valuation of securities.
(c) Note: Percentage of investments as shown is the ratio of the total market
value to total net assets.
(d) The interest rates disclosed for these securities represent the effective
yields on the date of acquisition.
* Moody's Rating.
6
<PAGE>
FORTIS TAX-FREE PORTFOLIOS INC.
MINNESOTA PORTFOLIO
Schedule of Investments
September 30, 1997
MUNICIPAL BONDS-98.13%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
GENERAL OBLIGATIONS-27.45%
$2,400,000 Centennial Independent School District #12,
5.625% Ser A 2-1-2016...................... Aa1* $ 2,366,074 $ 2,482,512
1,100,000 Maple Grove (City of), MN, 5.20% General
Obligation Impt Ser A 2-1-2017............. Aa* 1,088,087 1,095,930
1,215,000 Maple Grove (City of), MN, 5.20% General
Olbigation Impt Ser A 2-1-2013............. Aa* 1,183,590 1,224,744
2,300,000 Minneapolis (City of), MN, 5.00% Special
School District #001 General Obligation
2-1-2014................................... AA+ 2,200,837 2,279,576
1,515,000 Minnesota (State of), 5.25% General
Obligation State Enhancement Program
8-1-2015................................... AAA 1,478,761 1,519,712
750,000 Puerto Rico, 6.25% Commonwealth Aqueduct &
Sewer Auth Rev Ref Bond PR-GTD 7-1-2013.... A 803,766 839,940
1,310,000 Rochester (City of), MN, Independent School
District #535, 5.25% General Obligation Ser
A 2-1-2014................................. AA 1,288,808 1,323,113
1,950,000 Rosemount (City of), MN, Independent School
District #196, 5.70% Zero Coupon General
Obligation MBIA Insured 4-1-2015 (d)....... AA+ 729,228 767,364
1,025,000 Stillwater (City of), MN, 5.375% Cap Outlay
General Obligation Ser A FSA Insured
2-1-2017................................... AAA 997,876 1,033,487
1,155,000 Waseca (City of), MN, 5.50% Independent
School District #829 General Obligation
MBIA Insured 4-1-2017...................... AAA 1,133,368 1,169,149
------------ ------------
13,270,395 13,735,527
------------ ------------
HEALTH CARE/SERVICES-17.30%
1,000,000 Duluth (City of), MN, 8.375% EDA Health Care
Fac Rev (St. Mary's Med Ctr) Ser 1990
2-15-2020 (Refunded 2-15-2000 @ 102)....... AAA 1,018,180 1,114,360
785,000 Duluth (City of), MN, 9.00% Hosp Fac Rev Bond
(St. Luke's Hospital) Ser 1988 5-1-2018
(Refunded 5-1-1998 @ 102).................. AAA 798,215 823,873
2,000,000 Minneapolis & St. Paul (Cities of), MN, 5.70%
Hsg & Redev Auth Health Care System
Childrens Health Care Ser A FSA Insured
8-15-2016.................................. AAA 1,976,968 2,052,400
3,000,000 Minnesota Agriculture and Economic
Development, 5.50% Healthcare System Rev
Fairview Hospital and Healthcare Services
Ser 1997A MBIA Insured 11-15-2017.......... AAA 2,949,721 3,012,960
1,500,000 Rochester (City of), MN, 5.90% Health Care
Fac Rev Bond Mayo Med Ctr Ser I
11-15-2010................................. AA+ 1,577,026 1,653,045
------------ ------------
8,320,110 8,656,638
------------ ------------
HIGHER EDUCATION-8.30%
460,000 Minnesota Higher Education, 7.625% Mortgage
Rev for St. Mary's College Ser 3F 10-1-2016
(Refunded 10-1-2001 @ 100)................. BBB- 457,700 516,056
500,000 Northfield (City of), MN, 8.00% College
Facility Rev Bond for St. Olaf College
10-1-2018 (Refunded 10-1-1998 @ 100)....... NR 500,295 520,290
2,000,000 University of MN (Regents of), 5.50% General
Obligation Ser A 7-1-2021.................. AA 2,022,454 2,053,500
1,000,000 University of MN (Regents of), 5.75% General
Obligation Ser 1996A 7-1-2018.............. AA 1,012,082 1,063,970
------------ ------------
3,992,531 4,153,816
------------ ------------
HOUSING-18.07%
1,500,000 Brainerd (City of), MN, 6.65% Rev Ref Bond
Evangelical Lutheran-Good Samaritan Project
Ser 1992B FSA Insured 3-1-2017............. AAA 1,513,297 1,645,545
240,000 Dakota County, MN, 8.10% HRA Single Family
Rev GNMA Backed 3-1-2016................... AAA 245,736 247,370
300,000 Eden Prairie (City of), MN, 7.40% Multifamily
Housing Ser 1990 FHA Insured 8-1-2025...... AAA 299,956 314,640
855,000 Eden Prairie (City of), MN, 8.00% Multifamily
Housing Ser A FHA Insured 7-1-2026......... AAA 855,000 912,559
540,000 Edina (City of), MN, 7.50% Housing Dev Ref
Rev Edina Park Plaza Ser 1989A 12-1-2009... Aa* 539,625 566,924
500,000 Edina (City of), MN, 7.70% Housing Dev Ref
Rev Edina Park Plaza Ser A FHA Insured
12-1-2028.................................. Aa* 500,000 523,080
525,000 Mankato (City of), MN, 8.25% Nursing Home Rev
Bond Board of Soc Ministry Mankato Lutheran
Ser 1991A 10-1-2021........................ NR 520,000 608,800
1,070,000 Minneapolis (City of), MN, 7.10% HRA Mortgage
Rev Bond Riverplace Proj Ser A LOC Bank of
Tokyo 1-1-2020............................. Aa2* 1,081,809 1,094,118
485,000 Minneapolis (City of), MN, 8.25% Health Care
Fac Rev Bond Jones-Harrison Residence Ser
1991 9-1-2011.............................. NR 479,122 513,576
350,000 Minneapolis (City of), MN, 8.25% Rev Bond
Trinity Housing Proj Ser 1991 2-1-2018..... NR 350,000 362,089
500,000 Minnesota Housing Finance Agency, 6.95%
Housing Dev Bond Ser 1992A 8-1-2017........ AA 500,000 530,505
190,000 Minnesota Housing Finance Agency, 7.70%
Single Family Mortgage Bond Ser C
7-1-2014................................... AA+ 190,992 200,197
440,000 Northfield (City of), MN, 7.00% Health Care
Facility Northfield Retirement Ctr
5-1-2015................................... NR 436,441 457,930
500,000 Red Wing (City of), MN, 6.50% Elderly Housing
Fac Ref Rev River Region Obligated Group
Ser 1993C 9-1-2022......................... BBB+ 497,260 525,180
</TABLE>
7
<PAGE>
FORTIS TAX-FREE PORTFOLIOS INC.
MINNESOTA PORTFOLIO (CONTINUED)
Schedule of Investments
September 30, 1997
MUNICIPAL BONDS-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
$ 500,000 Spring Park (City of), MN, 8.25% Health Care
Fac Rev Bond Twin Birch Health Care Ctr
8-1-2011................................... NR $ 500,000 $ 538,650
------------ ------------
8,509,238 9,041,163
------------ ------------
MISCELLANEOUS-5.04%
450,000 Dakota County, MN, 7.50% HRA Limited Annual
Appropriation Tax & Rev Supported Bond Ser
1991 1-1-2006.............................. BBB+ 450,000 472,545
400,000 Dawson (City of), MN, 7.30% IDR Ref Bond
Associated Milk Producers 9-1-2000......... NR 396,426 418,396
1,000,000 Minneapolis (City of), MN, 7.375% CDA Limited
Tax Supported Dev Rev Common Bond Fund Ser
1995-G3 12-1-2012.......................... A- 1,000,000 1,106,960
500,000 Minneapolis (City of), MN, 8.375% CDA Limited
Tax Supported Dev Rev Common Bond Fund Ser
1990-6A 6-1-2007........................... A- 497,500 522,565
------------ ------------
2,343,926 2,520,466
------------ ------------
POLLUTION CONTROL-4.79%
650,000 East Grand Forks (City of), MN, 7.75%
Pollution Control Rev (American Crystal
Sugar) Ser 1991A 4-1-2018.................. BBB+ 650,475 705,646
1,000,000 Minnesota Public Fac Auth, 6.65% Zero Coupon
Water Pollution Rev Bond Ser 1992A 3-1-2007
(d)........................................ AAA 540,181 604,400
1,000,000 Minnesota Public Fac Auth, 7.10% Water
Pollution Rev Bond Ser 1990A 3-1-2012...... AAA 978,767 1,087,730
------------ ------------
2,169,423 2,397,776
------------ ------------
PUBLIC FACILITES-2.59%
400,000 Duluth (City of), MN, 6.75% Gross Rev
Recreation Fac Bond Spirit Mountain Ser
1992 2-1-2007.............................. NR 400,000 412,620
325,000 Moorhead (City of), MN, 7.75% Golf Course Rev
Bond Ser 1992A 12-1-2015................... NR 325,000 345,079
500,000 St. Paul (City of), MN, 6.45% HRA Parking Rev
Bond Ser 1992A 8-1-2007 (Refunded 8-1-2000
@ 102)..................................... A- 500,000 539,475
------------ ------------
1,225,000 1,297,174
------------ ------------
REFUNDED WITH U.S. GOVERNMENT SECURITIES-5.42%
400,000 Minneapolis (City of), MN, 8.00% HRA St. Paul
Health One Ser 1990B 8-15-2014 (Refunded
8-15-2000 @ 102)........................... AAA 411,286 448,876
1,275,000 St. Louis Park (City of), MN, 7.25% Hospital
Fac Rev Methodist Ser 1990C AMBAC Insured
7-1-2015 (Refunded 7-1-2000 @ 102)......... AAA 1,262,270 1,400,881
765,000 St. Louis Park (City of), MN, 8.50% Health
Care Fac (Park Nicollet Med Ctr) Ser A
1-1-2011 (Refunded 1-1-2001 @ 100)......... Aaa* 768,972 864,335
------------ ------------
2,442,528 2,714,092
------------ ------------
UTILITIES-ELECTRIC-8.11%
1,295,000 Northern MN Municipal Power Agency, 7.102%
Zero Coupon Elec Sys Rev Ref Ser A AMBAC
Primary Insured 1-1-2011 (d)............... AAA 524,495 653,315
2,400,000 St. Cloud (City of), MN, 5.25% General
Obligation Hydroelectric Rev Ref MBIA
Insured 12-1-2018.......................... AAA 2,325,860 2,372,616
1,000,000 Western MN Municipal Power Agency, 5.50% Ref
Ser A AMBAC Insured 1-1-2013............... AAA 991,758 1,029,130
------------ ------------
3,842,113 4,055,061
------------ ------------
UTILITIES-WATER AND SEWER-1.06%
500,000 St. Paul (City of), MN, 8.00% Sewer Rev Bond
Ser 1988A 12-1-2008 (Crossover Refunded
12-1-1998 @ 101)........................... BBB 500,000 527,715
------------ ------------
TOTAL MUNICIPAL BONDS........................ $46,615,264 $49,099,428
------------ ------------
------------ ------------
</TABLE>
8
<PAGE>
SHORT-TERM INVESTMENTS-0.63%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
--------- ------------
<C> <S> <C>
INVESTMENT COMPANY-0.63%
$315,722 Federated Minnesota Municipal Cash Trust, Current rate -- 3.76%........... $ 315,722
------------
TOTAL INVESTMENTS IN SECURITIES (COST: $46,930,986) (a)................... $49,415,150
------------
------------
</TABLE>
(a) At September 30, 1997, the cost of securities for federal income tax
purposes was $46,931,505, and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $ 2,485,406
Unrealized depreciation........................... (1,761)
---------------------------------------------------------------
Net unrealized appreciation....................... $ 2,483,645
---------------------------------------------------------------
</TABLE>
(b) See Note 1 of accompanying Notes to Financial Statements regarding
valuation of securities.
(c) Note: Percentage of investments as shown is the ratio of the total market
value to total net assets.
(d) The interest rates disclosed for these securities represent the effective
yields on the date of acquisition.
* Moody's Rating.
9
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Assets and Liabilities
September 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NATIONAL MINNESOTA
PORTFOLIO PORTFOLIO
------------ ------------
<S> <C> <C>
ASSETS:
Investments in securities, as detailed in the
accompanying schedules, at market (cost
$67,723,232; and $46,930,986; respectively)
(Note 1)...................................... $73,075,884 $49,415,150
Receivables:
Interest and dividends........................ 1,050,394 726,153
Deferred registration costs (Note 1)............ 17,683 5,950
------------ ------------
TOTAL ASSETS...................................... 74,143,961 50,147,253
------------ ------------
LIABILITIES:
Cash portion of dividends payable............... 104,749 62,120
Redemptions of capital stock.................... 654 5,554
Payable for investment advisory and management
fees (Note 2)................................. 46,519 29,803
Payable for distribution fees (Note 2).......... 963 405
Accounts payable and accrued expenses........... 19,926 16,579
------------ ------------
TOTAL LIABILITIES................................. 172,811 114,461
------------ ------------
NET ASSETS:
Net proceeds of capital stock, par value $.01
per share-authorized 100,000,000,000; and
100,000,000,000 shares; respectively.......... 68,504,305 47,537,392
Unrealized appreciation of investments.......... 5,352,652 2,484,164
Distributions in excess of net investment
income........................................ (48,084) (9,047)
Accumulated net realized gain from sale of
investments................................... 162,277 20,283
------------ ------------
TOTAL NET ASSETS.................................. $73,971,150 $50,032,792
------------ ------------
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Class A shares (based on net assets of $7,262,978;
and $3,689,004; respectively and 656,858; and
353,609 shares outstanding; respectively)....... $11.06 $10.43
------------ ------------
Class B shares (based on net assets of $1,286,592;
and $1,300,981; respectively and 116,432; and
124,850 shares outstanding; respectively)....... $11.05 $10.42
------------ ------------
Class C shares (based on net assets of $584,022;
and $231,589; respectively and 52,886; and
22,178 shares outstanding; respectively)........ $11.04 $10.44
------------ ------------
Class E shares (based on net assets of
$59,726,860; and $43,584,008; respectively and
5,395,595; and 4,167,840 shares outstanding;
respectively)................................... $11.07 $10.46
------------ ------------
Class H shares (based on net assets of $5,110,698;
and $1,227,210; respectively and 461,943; and
117,517 shares outstanding; respectively)....... $11.06 $10.44
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Operations
For the Year Ended September 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NATIONAL MINNESOTA
PORTFOLIO PORTFOLIO
----------- -----------
<S> <C> <C>
NET INVESTMENT INCOME:
Income:
Interest income................................. $4,498,159 $3,106,153
----------- -----------
Expenses:
Investment advisory and management fees (Note
2)............................................. 576,384 371,144
Distribution fees (Class A) (Note 2)............ 16,993 7,606
Distribution fees (Class B) (Note 2)............ 10,578 12,311
Distribution fees (Class C) (Note 2)............ 7,733 2,216
Distribution fees (Class H) (Note 2)............ 46,622 11,463
Registration fees (Note 1)...................... 44,840 40,521
Legal and auditing fees......................... 25,706 24,872
Shareholders' notices and reports............... 22,920 18,962
Custodian fees.................................. 15,235 11,871
Directors' fees and expenses.................... 10,034 6,911
Other........................................... 20,097 15,155
----------- -----------
Total expenses.................................... 797,142 523,032
----------- -----------
NET INVESTMENT INCOME............................... 3,701,017 2,583,121
----------- -----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE
1):
Net realized gain from security transactions...... 607,613 456,296
Net change in unrealized appreciation of
investments..................................... 1,542,136 402,887
----------- -----------
NET GAIN ON INVESTMENTS............................. 2,149,749 859,183
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................ $5,850,766 $3,442,304
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Changes in Net Assets
NATIONAL PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 3,701,017 $ 3,891,276
Net realized gain from security transactions.... 607,613 685,982
Net change in unrealized appreciation
(depreciation) of investments in securities... 1,542,136 (471,072)
------------------ ------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... 5,850,766 4,106,186
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (329,029) (182,138)
Class B....................................... (42,850) (32,480)
Class C....................................... (31,714) (8,022)
Class E....................................... (3,129,259) (3,534,046)
Class H....................................... (189,499) (122,710)
------------------ ------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (3,722,351) (3,879,396)
------------------ ------------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (151,166 and 449,965 shares).......... 1,640,602 4,861,712
Class B (45,077 and 45,495 shares)............ 493,819 489,032
Class C (97,772 and 14,245 shares)............ 1,054,744 153,026
Class E (172,663 and 269,334 shares).......... 1,869,526 2,914,650
Class H (129,325 and 260,768 shares).......... 1,402,422 2,813,222
Proceeds from shares issued as a result of
reinvested dividends
Class A (17,479 and 11,432 shares)............ 190,089 122,884
Class B (2,882 and 2,485 shares).............. 31,313 26,794
Class C (2,611 and 684 shares)................ 28,311 7,375
Class E (186,406 and 214,235 shares).......... 2,028,431 2,315,910
Class H (10,795 and 7,642 shares)............. 117,389 82,355
Less cost of repurchase of shares
Class A (92,271 and 49,683 shares)............ (1,002,654) (529,388)
Class B (24,367 and 17,603 shares)............ (267,065) (190,790)
Class C (68,234 and 4,088 shares)............. (725,474) (44,079)
Class E (1,029,099 and 999,377 shares)........ (11,165,616) (10,775,813)
Class H (51,643 and 58,950 shares)............ (562,890) (632,516)
------------------ ------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... (4,867,053) 1,614,374
------------------ ------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... (2,738,638) 1,841,164
NET ASSETS:
Beginning of year............................... 76,709,788 74,868,624
------------------ ------------------
End of year (includes distributions in excess of
net investment income of $48,084 and $26,750,
respectively)................................. $ 73,971,150 $ 76,709,788
------------------ ------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Changes in Net Assets
MINNESOTA PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 2,583,121 $ 2,891,691
Net realized gain (loss) from security
transactions.................................. 456,296 (66,018)
Net change in unrealized appreciation
(depreciation) of investments in securities... 402,887 (181,219)
------------------ ------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... 3,442,304 2,644,454
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (149,255) (82,763)
Class B....................................... (50,647) (27,649)
Class C....................................... (9,080) (9,242)
Class E....................................... (2,327,379) (2,719,829)
Class H....................................... (46,977) (39,824)
------------------ ------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (2,583,338) (2,879,307)
------------------ ------------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (218,477 and 141,525 shares).......... 2,250,193 1,468,872
Class B (16,325 and 91,006 shares)............ 167,995 930,206
Class C (6,987 and 12,417 shares)............. 72,000 129,148
Class E (129,779 and 183,971 shares).......... 1,334,599 1,903,947
Class H (28,209 and 124,931 shares)........... 290,250 1,278,687
Proceeds from shares issued as a result of
reinvested dividends
Class A (8,506 and 5,575 shares).............. 87,649 57,472
Class B (2,921 and 1,733 shares).............. 30,108 17,780
Class C (700 and 769 shares).................. 7,226 7,919
Class E (166,633 and 202,818 shares).......... 1,723,375 2,099,431
Class H (2,570 and 2,618 shares).............. 26,550 26,982
Less cost of repurchase of shares
Class A (51,049 and 55,198 shares)............ (524,883) (568,492)
Class B (2,631 and 2,025 shares).............. (27,153) (20,727)
Class C (6,013 and 6,577 shares).............. (62,355) (67,864)
Class E (919,962 and 692,789 shares).......... (9,495,068) (7,141,366)
Class H (16,693 and 86,089 shares)............ (171,976) (869,654)
------------------ ------------------
NET DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... (4,291,490) (747,659)
------------------ ------------------
TOTAL DECREASE IN NET ASSETS...................... (3,432,524) (982,512)
NET ASSETS:
Beginning of year............................... 53,465,316 54,447,828
------------------ ------------------
End of year (includes distributions in excess of
net investment income of $9,047 and $8,830,
respectively)................................. $50,032,792 $53,465,316
------------------ ------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
FORTIS TAX FREE PORTFOLIOS, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Fortis Tax-Free Portfolios, Inc.
is an open-end management investment company which currently is comprised of
two separate investment portfolios and series of capital stock: the National
and Minnesota Portfolios, (the Funds) are diversified portfolios each of
which has different investment objectives and its own investment portfolio
and net asset value. The investment objective of National Portfolio is to
maximize total return, to be derived primarily from current income exempt
from federal income tax (at a level consistent with prudent investment risk)
and from change in the market value of the securities held by the Portfolio.
The investment objective of Minnesota Portfolio is to maximize total return,
to be derived primarily from current income exempt from both federal and
Minnesota income tax (at a level consistent with prudent investment risk) and
from change in the market value of the securities held by the Portfolio.
The Minnesota Portfolio concentrates it's investments in a single state and,
therefore, may have more credit risk related to the economic conditions of
the respective state than a portfolio with broader geographical
diversification.
The fund offers Class A, Class B, Class C, Class E and Class H shares. The
fund began to issue class shares effective November 14, 1994. Class E shares
are only available to existing shareholders on November 14, 1994. Class A and
E shares are sold with a front-end sales charge. Class B and H shares are
sold without a front-end sales charge and may be subject to a contingent
deferred sales charge for six years, and such shares automatically convert to
Class A after eight years. Class C shares are sold without a front-end sales
charge and may be subject to a contingent deferred sales charge for one year.
All classes of shares have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that the level of
distribution fees charged differs between classes. Income, expenses (other
than expenses incurred under each class's distribution agreement) and
realized and unrealized gains or losses on investments are allocated to each
class of shares based on its relative net assets.
The significant accounting policies followed by the fund are summarized as
follows:
SECURITY VALUATION: Investments in securities traded on a national securities
exchange or on the NASDAQ National Market System are valued at the last
reported sales price. Securities for which over-the-counter market quotations
are readily available are valued on the basis of the last current bid price.
An outside pricing service may be utilized to provide such valuations. The
pricing service may employ a matrix system to determine valuations using
methods which include consideration of yields or prices of bonds of
comparable quality, type of issue, coupon, maturity and rating indications as
to value from dealers, and general market conditions. Securities for which
quotations are not readily available are valued at fair value as determined
in good faith by management under supervision of the Board of Directors.
Short-term investments, with maturities of less than 60 days when acquired,
or which subsequently are within 60 days of maturity, are valued at amortized
cost.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions
are accounted for on the trade date. Interest income is recorded on the
accrual basis. Realized security gains and losses are determined using the
identified cost method. For financial reporting purposes, the portfolios
amortize long-term bond premium and original issue discount.
For the year ended ended September 30, 1997, the cost of purchases and
proceeds from sales of securities (other than short-term securities)
aggregated $52,349,104 and $58,305,953 for National Portfolio; and
$30,356,947 and $34,084,436 for Minnesota Portfolio, respectively.
INCOME TAXES: The portfolios intend to qualify, under the Internal Revenue
Code, as regulated investment companies and if so qualified, will not have to
pay federal income taxes to the extent their taxable net income is
distributed. On a calendar year basis, the fund intends to distribute
substantially all of its taxable net investment income and realized gains, if
any, to avoid the payment of federal excise taxes.
Net realized gains may differ for financial statement and tax purposes
primarily because of wash sale transactions. The character of distributions
made during the year from net investment income or net realized gains may
also differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal year
in which amounts are distributed may differ from the year that the income or
realized gains (losses) were recorded by the fund.
DEFERRED COSTS: Registration costs are deferred and charged to income over
the registration period.
INCOME AND CAPITAL GAINS DISTRIBUTION: The portfolios declare income
distributions daily to be paid on the last business day of each month. The
portfolios will make annual distributions of any realized capital gains as
required by law. These income and capital gains distributions may be
reinvested in additional shares of the portfolio at net asset value on the
payable date or paid in cash five business days after month end without any
charge to the shareholder.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of increase and decrease
in net assets from operations during the reporting period. Actual results
could differ from those estimates.
2. PAYMENTS TO RELATED PARTIES: Fortis Advisers, Inc. (Advisers), is the
investment adviser for the fund. Investment advisory fees paid by the
Minnesota Portfolio are computed at an annual rate of .8% of the first $50
million in average daily net assets, .7% of the next $50 million in average
daily net assets and .625% of average daily net assets in excess of $100
million. The National Portfolio's investment advisory fees are computed at an
annual rate of .8% of the first $50 million in average daily net assets, and
.7% of average daily net assets in excess of $50 million. The fee percentage
for the Minnesota Portfolio is based upon the aggregate average net assets of
the National and Minnesota Portfolios combined. The fee is then allocated to
the Minnesota Portfolio based upon proportionate net assets. The fee
percentage for National Portfolio is based upon the average net assets of the
portfolio alone.
In addition to the investment advisory and management fee, Classes A, B, C
and H pay Fortis Investors, Inc. (the fund's principal underwriter)
distribution fees equal to .25% (Class A) and 1.00% (Class B, C, and H) of
average daily net assets (of the respective classes) on an annual basis, to
be used to compensate those who sell shares of the fund and to pay certain
other expenses of selling fund shares. Fortis Investors, Inc., also received
sales charges (paid by purchasers or redeemers of the fund's shares)
aggregating:
<TABLE>
<CAPTION>
Class A Class B Class C Class E Class H
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
National Portfolio........................... $ 39,594 $3,903 $6,530 $ 42,450 $6,599
Minnesota Portfolio.......................... $ 21,386 $ 540 $ 63 $ 32,227 $3,891
</TABLE>
Legal fees and expenses aggregating $1,285 and $791 for the National and
Minnesota Portfolios, respectively, were paid to a law firm of which the
secretary of the fund is a partner.
14
<PAGE>
- --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS: Selected per share historical data for each of the
Portfolios was as follows:
<TABLE>
<CAPTION>
Class E
----------------------------------------------------------------- Class A
Three-Month ---------------------------
Period Ended
September Year Ended June 30,
Year Ended September 30, 30, Year Ended September 30,
----------------------------- ------------ ------------------- ---------------------------
NATIONAL PORTFOLIO 1997 1996 1995 1994 1994 1993 1997 1996 1995+
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 10.76 $ 10.72 $ 10.38 $ 10.46 $ 11.13 $ 10.54 $ 10.75 $ 10.71 $ 9.79
-------- -------- ------- ------------ -------- -------- ------- ------- -------
Operations:
Investment income - net..... .55 .56 .58 .15 .60 .63 .53 .53 .49
Net realized and unrealized
gain (loss) on
investments............... .31 .04 .36 (.09) (.64) .59 .31 .04 .94
-------- -------- ------- ------------ -------- -------- ------- ------- -------
Total from operations......... .86 .60 .94 .06 (.04) 1.22 .84 .57 1.43
-------- -------- ------- ------------ -------- -------- ------- ------- -------
Distributions to shareholders:
From investment income -
net....................... (.55) (.56) (.59) (.14) (.59) (.62) (.53) (.53) (.50)
Excess distributions of net
investment income......... -- -- -- -- -- (.01) -- -- --
From net realized gains on
investments............... -- -- (.01) -- (.04) -- -- -- (.01)
-------- -------- ------- ------------ -------- -------- ------- ------- -------
Total distributions to
shareholders................. (.55) (.56) (.60) (.14) (.63) (.63) (.53) (.53) (.51)
-------- -------- ------- ------------ -------- -------- ------- ------- -------
Net asset value, end of
period....................... $ 11.07 $ 10.76 $ 10.72 $ 10.38 $ 10.46 $ 11.13 $ 11.06 $ 10.75 $ 10.71
-------- -------- ------- ------------ -------- -------- ------- ------- -------
Total return @................ 8.19% 5.69% 9.30% .59% (.49%) 11.99% 7.96% 5.46% 14.80%
Net assets end of period (000s
omitted).................... $ 59,727 $ 65,237 $70,531 $74,877 $ 76,746 $ 70,754 $ 7,263 $ 6,239 $ 1,807
Ratio of expenses to average
daily net assets............ .95% .93% 1.03% .87%* .87% .94% 1.20% 1.18% 1.28%*
Ratio of net investment income
to average daily net
assets...................... 5.03% 5.19% 5.54% 5.74%* 5.38% 5.80% 4.78% 4.97% 5.03%*
Portfolio turnover rate....... 71% 52% 35% 17% 25% 29% 71% 52% 35%
</TABLE>
<TABLE>
<CAPTION>
Class B Class C Class H
--------------------------- --------------------------- ---------------------------
Year Ended September 30,
---------------------------------------------------------------------------------------
NATIONAL PORTFOLIO 1997 1996 1995+ 1997 1996 1995+ 1997 1996 1995+
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 10.74 $ 10.70 $ 9.79 $ 10.74 $ 10.70 $ 9.79 $ 10.75 $ 10.71 $ 9.79
------- ------- ------- ------- ------- ------- ------- ------- -------
Operations:
Investment income - net..... .44 .45 .42 .43 .45 .43 .44 .45 .43
Net realized and unrealized
gain on investments....... .31 .04 .93 .31 .04 .92 .31 .04 .93
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from operations......... .75 .49 1.35 .74 .49 1.35 .75 .49 1.36
------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions to shareholders:
From investment income -
net....................... (.44) (.45) (.43) (.44) (.45) (.43) (.44) (.45) (.43)
From net realized gains on
investments............... -- -- (.01) -- -- (.01) -- -- (.01)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions to
shareholders................. (.44) (.45) (.44) (.44) (.45) (.44) (.44) (.45) (.44)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period....................... $ 11.05 $ 10.74 $ 10.70 $ 11.04 $ 10.74 $ 10.70 $ 11.06 $ 10.75 $ 10.71
------- ------- ------- ------- ------- ------- ------- ------- -------
Total return @................ 7.14% 4.65% 13.96% 7.04% 4.65% 13.95% 7.13% 4.64% 14.06%
Net assets end of period (000s
omitted).................... $ 1,287 $ 997 $ 668 $ 584 $ 223 $ 106 $ 5,111 $ 4,015 $ 1,757
Ratio of expenses to average
daily net assets............ 1.95% 1.93% 2.03%* 1.95% 1.93% 2.03%* 1.95% 1.93% 2.03%*
Ratio of net investment income
to average daily net
assets...................... 4.02% 4.20% 4.04%* 4.05% 4.20% 4.14%* 4.03% 4.20% 4.24%*
Portfolio turnover rate....... 71% 52% 35% 71% 52% 35% 71% 52% 35%
</TABLE>
* Annualized.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
15
<PAGE>
FORTIS TAX FREE PORTFOLIOS, INC.
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3. FINANCIAL HIGHLIGHTS (continued):
Class E
-------------------------------------------------------------- Class A
Three-Month ------------------------
Period Ended
September Year Ended June Year Ended September 30,
Year Ended September 30, 30, 30,
--------------------------- ------------ ----------------- ------------------------
MINNESOTA PORTFOLIO 1997 1996 1995 1994 1994 1993 1997 1996 1995+
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period................ $ 10.28 $ 10.32 $ 10.08 $ 10.15 $ 10.65 $ 10.16 $10.26 $10.30 $ 9.55
------- ------- ------- ------------ ------- ------- ------ ------ ------
Operations:
Investment income -
net.................... .53 .55 .57 .15 .59 .61 .50 .52 .48
Net realized and
unrealized gain (loss)
on investments......... .18 (.04) .24 (.08) (.51) .49 .18 (.04) .76
------- ------- ------- ------------ ------- ------- ------ ------ ------
Total from operations...... .71 .51 .81 .07 .08 1.10 .68 .48 1.24
------- ------- ------- ------------ ------- ------- ------ ------ ------
Distributions to
shareholders:
From investment income -
net.................... (.53) (.55) (.57) (.14) (.58) (.61) (.51) (.52) (.49)
------- ------- ------- ------------ ------- ------- ------ ------ ------
Net asset value, end of
period.................... $ 10.46 $ 10.28 $ 10.32 $ 10.08 $ 10.15 $ 10.65 $10.43 $10.26 $10.30
------- ------- ------- ------------ ------- ------- ------ ------ ------
Total return @............. 7.10% 5.01% 8.35% .72% .64% 11.17% 6.66% 4.78% 13.15%
Net assets end of period
(000s omitted)........... $43,584 $49,262 $52,603 $54,560 $54,854 $52,271 $3,689 $1,822 $ 884
Ratio of expenses to
average daily net
assets................... .96% .93% .98% .85%* .85% .89% 1.21% 1.18% 1.23%*
Ratio of net investment
income to average daily
net assets............... 5.14% 5.34% 5.60% 5.69%* 5.51% 5.82% 4.89% 5.07% 5.10%*
Portfolio turnover rate.... 61% 41% 27% 8% 11% 17% 61% 41% 27%
</TABLE>
<TABLE>
<CAPTION>
Class B Class C Class H
--------------------------- --------------------------- ---------------------------
Year Ended September 30,
---------------------------------------------------------------------------------------
MINNESOTA PORTFOLIO 1997 1996 1995+ 1997 1996 1995+ 1997 1996 1995+
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period................ $ 10.24 $ 10.27 $ 9.55 $ 10.26 $ 10.30 $ 9.55 $ 10.26 $ 10.30 $ 9.55
------- ------- ------- ------- ------- ------- ------- ------- -------
Operations:
Investment income -
net.................... .42 .45 .41 .42 .44 .42 .42 .44 .41
Net realized and
unrealized gain (loss)
on investments......... .18 (.04) .73 .18 (.04) .75 .18 (.04) .76
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from operations...... .60 .41 1.14 .60 .40 1.17 .60 .40 1.17
------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions to
shareholders:
From investment income -
net.................... (.42) (.44) (.42) (.42) (.44) (.42) (.42) (.44) (.42)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period.................... $ 10.42 $ 10.24 $ 10.27 $ 10.44 $ 10.26 $ 10.30 $ 10.44 $ 10.26 $ 10.30
------- ------- ------- ------- ------- ------- ------- ------- -------
Total return @............. 6.01% 4.04% 12.10% 6.00% 4.00% 12.31% 6.00% 3.93% 12.42%
Net assets end of period
(000s omitted)........... $ 1,301 $ 1,109 $ 180 $ 232 $ 210 $ 143 $ 1,227 $ 1,061 $ 638
Ratio of expenses to
average daily net
assets................... 1.96% 1.93% 1.98%* 1.96% 1.93% 1.98%* 1.96% 1.93% 1.98%*
Ratio of net investment
income to average daily
net assets............... 4.14% 4.34% 4.37%* 4.14% 4.31% 4.28%* 4.14% 4.33% 4.29%*
Portfolio turnover rate.... 61% 41% 27% 61% 41% 27% 61% 41% 27%
</TABLE>
* Annualized.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Fortis Tax-Free Portfolios, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments in securities, of National Portfolio and Minnesota
Portfolio (portfolios within Fortis Tax-Free Portfolios, Inc.) as of September
30, 1997, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
ended September 30, 1997, and the financial highlights presented in footnote 4
to the financial statements. These financial statements and the financial
highlights are the responsibility of fund management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
National Portfolio and Minnesota Portfolio as of September 30, 1997, and the
results of their operations for the year then ended, the changes in their net
assets for each of the years in the two-year period ended September 30, 1997,
and the financial highlights presented in footnote 4 to the financial
statements, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 7, 1997
17
<PAGE>
FEDERAL INCOME TAX INFORMATION
Exempt interest dividends are exempt from federal income taxes and should not be
included in shareholder's gross income, but need to be reported on the income
tax return for informational purposes. Each shareholder should consult a tax
adviser about reporting this income for state and local tax purposes. In
January, 1998, the fund will provide the shareholder with information regarding
the percentage of distributions exempt from federal income taxes and a breakdown
setting forth states from which income was earned.
During the year ended September 30, 1997, 100% of the National and Minnesota
Portfolios' distributions were derived from interest on municipal securities and
qualify as exempt dividends for federal tax purposes.
Detailed below are the per share distributions made for the year ended September
30, 1997.
NATIONAL PORTFOLIO
Record Date
<TABLE>
<CAPTION>
INCOME DISTRIBUTIONS PER SHARE Class A Class B Class C Class E Class H
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------
October 31, 1996............................. $0.044 $0.037 $0.037 $0.046 $0.037
November 29, 1996............................ 0.044 0.037 0.037 0.046 0.037
December 31, 1996............................ 0.044 0.037 0.037 0.046 0.037
January 31, 1997............................. 0.044 0.037 0.037 0.046 0.037
February 28, 1997............................ 0.044 0.037 0.037 0.046 0.037
March 31, 1997............................... 0.044 0.037 0.037 0.046 0.037
April 30, 1997............................... 0.044 0.037 0.037 0.046 0.037
May 30, 1997................................. 0.044 0.037 0.037 0.046 0.037
June 30, 1997................................ 0.044 0.037 0.037 0.046 0.037
July 31, 1997................................ 0.043 0.036 0.036 0.045 0.036
August 29, 1997.............................. 0.043 0.036 0.036 0.045 0.036
September 30, 1997........................... 0.043 0.036 0.036 0.045 0.036
------- ------- ------- ------- -------
Total Distributions.......................... $0.525 $0.441 $0.441 $0.549 $0.441
------- ------- ------- ------- -------
MINNESOTA PORTFOLIO
Record Date
INCOME DISTRIBUTIONS PER SHARE
October 31, 1996............................. $0.043 $0.036 $0.036 $0.045 $0.036
November 29, 1996............................ 0.043 0.036 0.036 0.045 0.036
December 31, 1996............................ 0.043 0.036 0.036 0.045 0.036
January 31, 1997............................. 0.042 0.035 0.035 0.044 0.035
February 28, 1997............................ 0.042 0.035 0.035 0.044 0.035
March 31, 1997............................... 0.042 0.035 0.035 0.044 0.035
April 30, 1997............................... 0.042 0.035 0.035 0.044 0.035
May 30, 1997................................. 0.042 0.035 0.035 0.044 0.035
June 30, 1997................................ 0.042 0.035 0.035 0.044 0.035
July 31, 1997................................ 0.042 0.035 0.035 0.044 0.035
August 29, 1997.............................. 0.042 0.035 0.035 0.044 0.035
September 30, 1997........................... 0.042 0.035 0.035 0.044 0.035
------- ------- ------- ------- -------
Total Distributions.......................... $0.507 $0.423 $0.423 $0.531 $0.423
------- ------- ------- ------- -------
</TABLE>
18
<PAGE>
DIRECTORS AND OFFICERS
DIRECTORS Richard W. Cutting CPA AND FINANCIAL CONSULTANT
Allen R. Freedman CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
FORTIS, INC. MANAGING DIRECTOR OF
FORTIS INTERNATIONAL, N.V.
Dr. Robert M. Gavin PRESIDENT, CRANBROOK EDUCATION
COMMUNITY. PRIOR TO JULY 1996,
PRESIDENT MACALESTER COLLEGE
Benjamin S. Jaffray CHAIRMAN, SHEFFIELD GROUP, LTD.
Jean L. King PRESIDENT, COMMUNI-KING
Dean C. Kopperud CHIEF EXECUTIVE OFFICER AND DIRECTOR,
FORTIS ADVISERS, INC. PRESIDENT AND
DIRECTOR, FORTIS INVESTORS, INC.
SENIOR VICE PRESIDENT AND DIRECTOR,
FORTIS BENEFITS INSURANCE COMPANY AND
TIME INSURANCE COMPANY
Edward M. Mahoney PRIOR TO JANUARY, 1995, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER, FORTIS
ADVISERS, INC., FORTIS INVESTORS,
INC.
Robb L. Prince FINANCIAL AND EMPLOYEE BENEFIT
CONSULTANT. PRIOR TO JULY, 1995, VICE
PRESIDENT AND TREASURER, JOSTENS,
INC.
Leonard J. Santow PRINCIPAL, GRIGGS & SANTOW, INC.
Noel Shadko MARKETING CONSULTANT. PRIOR TO MAY,
1996, SENIOR VICE PRESIDENT OF
MARKETING & STRATEGIC PLANNING,
ROLLERBLADE, INC.
Joseph M. Wikler INVESTMENT CONSULTANT AND PRIVATE
INVESTOR. PRIOR TO JANUARY, 1994,
DIRECTOR OF RESEARCH, CHIEF
INVESTMENT OFFICER, PRINCIPAL, AND
DIRECTOR, THE ROTHSCHILD CO.
OFFICERS
Dean C. Kopperud
PRESIDENT AND DIRECTOR
Robert W. Beltz, Jr.
VICE PRESIDENT
James S. Byrd
VICE PRESIDENT
Tamara L. Fagely
VICE PRESIDENT AND TREASURER
Howard G. Hudson
VICE PRESIDENT
David A. Peterson
VICE PRESIDENT
Scott R. Plummer
VICE PRESIDENT
Rhonda J. Schwartz
VICE PRESIDENT
Gary N. Yalen
VICE PRESIDENT
Michael J. Radmer
SECRETARY
INVESTMENT MANAGER, REGISTRAR Fortis Advisers, Inc.
AND TRANSFER AGENT BOX 64284, ST. PAUL, MINNESOTA 55164
PRINCIPAL UNDERWRITER Fortis Investors, Inc.
BOX 64284, ST. PAUL, MINNESOTA 55164
CUSTODIAN First Bank National Association
MINNEAPOLIS, MINNESOTA
GENERAL COUNSEL Dorsey & Whitney LLP
MINNEAPOLIS, MINNESOTA
INDEPENDENT AUDITORS KPMG Peat Marwick LLP
MINNEAPOLIS, MINNESOTA
The use of this material is authorized only when preceded or accompanied by a
prospectus.
19
<PAGE>
FORTIS FINANCIAL GROUP'S OTHER PRODUCTS AND SERVICES
MUTUAL Fortis Bond Funds MONEY FUND
FUNDS/PORTFOLIOS U.S. GOVERNMENT
CONVENIENT ACCESS TO SECURITIES FUND
A BROAD TAX-FREE MINNESOTA
RANGE OF SECURITIES PORTFOLIO
TAX-FREE NATIONAL
PORTFOLIO
HIGH YIELD PORTFOLIO
Fortis Stock Funds ASSET ALLOCATION
PORTFOLIO
VALUE FUND
GROWTH & INCOME FUND
CAPITAL FUND
FIDUCIARY FUND
GLOBAL GROWTH PORTFOLIO
GROWTH FUND
CAPITAL APPRECIATION
PORTFOLIO
FIXED AND VARIABLE Fortis Opportunity Fixed FIXED ACCOUNT
ANNUITIES & Variable Annuity MONEY MARKET SUBACCOUNT
TAX-DEFERRED Masters Variable Annuity U.S. GOVERNMENT
INVESTING SECURITIES SUBACCOUNT
DIVERSIFIED INCOME
SUBACCOUNT
GLOBAL BOND SUBACCOUNT
HIGH YIELD SUBACCOUNT
ASSET ALLOCATION
SUBACCOUNT
GLOBAL ASSET ALLOCATION
SUBACCOUNT
VALUE SUBACCOUNT
GROWTH & INCOME
SUBACCOUNT
S&P 500 INDEX SUBACCOUNT
BLUE CHIP STOCK
SUBACCOUNT
GLOBAL GROWTH SUBACCOUNT
GROWTH STOCK SUBACCOUNT
INTERNATIONAL STOCK
SUBACCOUNT
AGGRESSIVE GROWTH
SUBACCOUNT
Fortune Fixed Annuities SINGLE PREMIUM ANNUITY
FLEXIBLE PREMIUM ANNUITY
Income Annuities GUARANTEED FOR LIFE
GUARANTEED FOR A
SPECIFIED PERIOD
LIFE Wall Street Series FIXED ACCOUNT
INSURANCE PROTECTION Variable Universal Life MONEY MARKET SUBACCOUNT
AND TAX- Insurance U.S. GOVERNMENT
DEFERRED INVESTMENT SECURITIES SUBACCOUNT
OPPORTUNITY DIVERSIFIED INCOME
SUBACCOUNT
GLOBAL BOND SUBACCOUNT
HIGH YIELD SUBACCOUNT
ASSET ALLOCATION
SUBACCOUNT
GLOBAL ASSET ALLOCATION
SUBACCOUNT
VALUE SUBACCOUNT
GROWTH & INCOME
SUBACCOUNT
S&P 500 INDEX SUBACCOUNT
BLUE CHIP STOCK
SUBACCOUNT
GLOBAL GROWTH SUBACCOUNT
GROWTH STOCK SUBACCOUNT
INTERNATIONAL STOCK
SUBACCOUNT
AGGRESSIVE GROWTH
SUBACCOUNT
Adaptable Life
Universal Life
FORTIS FINANCIAL GROUP manages and distributes mutual funds, annuities and life
insurance products. The mutual funds, variable life and variable annuity
products are distributed through FORTIS INVESTORS, INC. and managed by FORTIS
ADVISERS, INC. The insurance products are issued by FORTIS BENEFITS INSURANCE
COMPANY, FIRST FORTIS LIFE INSURANCE COMPANY and TIME INSURANCE COMPANY.
FOR MORE COMPLETE INFORMATION, INCLUDING CHARGES AND EXPENSES, SEND FOR A
PROSPECTUS. WRITE TO: FORTIS INVESTORS, INC., P.O. BOX 64284, ST. PAUL, MN
55164. READ IT CAREFULLY BEFORE INVESTING OR SENDING MONEY.
20
<PAGE>
- --------------------------------------------------------------------------------
FORTIS FINANCIAL GROUP
Fortis Financial Group (FFG) provides solutions for customers' financial needs
using mutual funds, annuities and life insurance. Besides our own array of
quality products, we create and deliver customized products for other financial
service providers. Like the Fortis name, which comes from the Latin for strong
and steadfast, we concentrate on the customer relationships we build, the
services we provide, the solutions we offer and the performance we seek.
FFG includes Fortis Advisers, Inc., an established money manager, as well as
Fortis Investors, Inc., a broker dealer with nationwide sales and marketing
influence. The guarantees in our insurance products are underwritten by Fortis
Benefits Insurance Company and Time Insurance Company.
[PHOTO]
Fortis Financial Group is part of Fortis, Inc., a financial services company
that provides specialty insurance and investment products to individuals,
businesses, associations and other financial services organizations in the
United States. Fortis, Inc. is part of Fortis, a worldwide group of companies
active in the fields of insurance, banking and investments. Fortis is jointly
owned by Fortis AMEV of The Netherlands and Fortis AG of Belgium.
- - FOR MORE INFORMATION, CALL YOUR INVESTMENT REPRESENTATIVE OR FORTIS AT
(800) 800-2638.
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[LOGO] Bulk Rate
U.S. Postage
FORTIS FINANCIAL GROUP PAID
P.O. BOX 64284 Permit No. 3794
ST. PAUL, MN 55164 Minneapolis, MN
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FORTIS TAX-FREE PORTFOLIOS
- - Printed on recycled paper with
40% preconsumer waste and 10%
post consumer waste. Please recycle.
[LOGO]-Registered Trademark- and Fortis-Registered Trademark- are registered
servicemarks of Fortis AMEV and Fortis AG.
95311 (11/97)
